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Breaking the Wall

By: Miguel Perez-Santalla | Friday, January 25, 2013

It is only a matter of time until something blows...

I always try to keep a positive attitude, even in times of struggle. But to
me it is one thing to keep a positive attitude and another to over emphasize
positive achievements. This is what's happening with the recent sovereign debt
auctions in Europe.

These new government bonds were lauded as having sold very well, with the
cost of funding kept low. For instance, the Spanish 10-year government bond
yield is now about 5%, which is the lowest since March of 2012. But is that
the whole story? Does the positive action really indicate recovery?

There are many who believe that the European Central Bank and even the US
Fed were both involved in buying Spain's new debt yesterday, and keeping yields
down. Even ignoring this as only hearsay, there is still trouble in the illusion
of a sudden paradise.

Spain's jobless rate is at 26%, the economy contracting another 1.7% per year
at last count. Their pain and suffering continues to grow. Greece's 10-year
interest rates are down more than 23 percentage points from this time a year
ago, but its government depends more than ever on Eurozone and IMF life-support.
The tiny island state of Cyprus is essentially in default and needs to be bailed
out. France is throwing itself into African adventure as its economy stalls
again. And across the Channel, the United Kingdom's GDP is heading for triple-dip
recession - down 0.3% in the last quarter of 2012, and dead-flat at 0% growth
from a year before.

The most important thing about these numbers is how they affect people. The
people are suffering. More unrest is sure to follow.

In the European Union, Germany is the only diamond in the rough. But can they
carry the whole EU on their backs, and do they want to? The United Kingdom
has all but threatened a possible exit, with the prime minister promising a
referendum apparently on issues of sovereignty, but it's well-timed with the
domestic economy's headlines this week. France and Italy - the other two large
European economies - are also suffering from increasing unemployment. This
raises serious doubt about the future success of the EU and the ECB's programs.

In the meanwhile, we have slightly positive job growth numbers creating a
positive view of the US economy. However this morning's minus 7.3% reading
on New Home Sales - when the expectation was of up 2.1% - just goes to show
that our economic forecasters are not even as good as our weathermen. If not
for Federal Reserve quantitative easing the number may have been much worse.

Sure, the stock market is making new highs. But as I have argued before, this
is in no small way because of the devaluation of the US Dollar due to constant
increases in the money supply generated by the Fed. Add to this the unnaturally
low interest rates - also held by the Fed - and it forces money to go anywhere
but into bank deposits unless you want to lose spending power in real terms.

The bottom-line on this is that as long as we continue to have the global
central banks increasing money supply and manipulating the interest rate markets
to unnatural levels it is only a matter of time until something blows. This
is like building a dam to hold off a river but with no way to redirect the
pressure.

So as we see unemployment high around the globe these machinations will only
hide the pain for the short term. It is my belief that gold, even at current
levels, needs to be an important part of any investor's portfolio. If you have
money and need to protect its value, it should prove one of the few ways to
protect yourself from the impending break in this wall of false perceptions.

BullionVault is the secure, low-cost
gold and silver exchange for private investors. It enables you to buy and
sell professional-grade bullion at live prices online, storing your physical
property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with
formal bullion-market bar lists.

BullionVault is a full member of
professional trade body the London Bullion Market Association (LBMA). Its
innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.